The Government has never explained why it did not use earthquake recovery legislation to develop Christchurch's residential red-zone policy, the Supreme Court has heard.

The Quake Outcasts group, made up of owners of vacant and uninsured red-zoned land, is having its case heard at a two-day hearing in Wellington.

Among its legal arguments is that the red-zoning policy was unlawful because the Canterbury Earthquake Recovery Act, which would have required community consultation, was not followed.

The Government says it had an overriding authority using a common law practice known as the third source of power.

Outcasts lawyer Francis Cooke, QC, told the court today that the need to fast-track decisions on land was not a "full and frank" explanation for why the act had not been followed.

"Obviously a decision was made not to use the statutory machinery ... there must be reasons for that, but we just don't know why," he said.

"It's quite important to understand why that decision was made."

Cooke said red-zoning was "one of the most profound" earthquake recovery measures the Government had implemented. Landowners offered 50 per cent of their land valuation were left "in limbo" while "the suburbs around them were vacated".

The offer made clear that infrastructure and essential services would not be repaired or maintained and that compulsory acquisition at a value less than the offer could not be ruled out, Cooke said.

The differential treatment left landowners in a "truly desperate" position.

Cooke argued that it contravened the purpose of the act, which was to allow affected residents to recover.

"If the purpose of this payment is to allow resettlement, then those uninsured for whatever reason - either by accident or design - need to resettle as well."

A "one-size-fits-all" approach had to be taken irrespective of the insurance proceeds the Government could recover, he said.

Justice William Young suggested the areas red-zoned may have been vacated even without the Government's intervention.

"It may be that building consents wouldn't have been able to be obtained for land," he said.

"How do we know it was the Government's decision as opposed to the consequences of the earthquake?"

Cooke said the effect of not red-zoning would never be known.

"Could it be possible that some of these people in individual circumstances would have moved on?" he said.

"Yes, that's possible, but in the end that's slightly speculative because the Government made the call to move people on."